Small stocks are about to take over? Wall Street has heard it before

Suddenly, smaller stocks seem to be making bigger noise on Wall Street.

After getting trounced by their larger rivals for years, some of the smallest stocks on Wall Street have shown much more life recently. Hopes for coming cuts to interest rates have pushed investors to look at smaller stocks through a different lens.

Smaller companies, which often carry heavy debt burdens, can feel more relief from lower borrowing costs than huge multinationals. Plus, critics said the Big Tech stocks that had been carrying the market for years were looking expensive after their meteoric rises.

The small stocks in the Russell 2000 index leaped a stunning 11.5% over five days, beginning on July 11. The surge looked even more eye-popping when compared with the tepid gain of 1.6% for the big stocks in the S&P 500 over the same span. Investors pumped $9.9 billion into funds focused on small U.S. stocks last week, the largest amount since 2007, according to strategists at Deutsche Bank.

They were all encouraging signals to analysts, who say a market with many stocks rising is healthier than one dependent on just a handful of stars.

If this all sounds familiar, it should. Hope for a broadening out of the market has sprung up periodically on Wall Street, including late last year. Each time, it ended up fizzling, and Big Tech resumed its dominance.

Of course, this time looks different in some ways. Some of the boost for small stocks may have come from rising expectations for a Republican sweep in November's elections, following President Joe Biden's disastrous debate performance last month. That pushed up U.S. stocks seen as benefiting from a White House that could be hostile to international trade, among other things.

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